Lending Club could be one of Silicon Valley's biggest tech IPOs of 2014

SAN FRANCISCO -- Lending Club, the world's biggest website for matching borrowers who need small loans with investors, filed for a long-anticipated initial public offering on Wednesday, breathing life back into a sleepy IPO market and offering a small victory to online lending startups that are challenging big banks and credit card companies.

The San Francisco company, which made nearly $100 million last year, is hoping to seize on the success of the online lending industry as it grows into a robust alternative to traditional loans, and validate the industry as a high-tech, quicker version of bank lending that is here to stay. Widely considered to be the leader in Internet lending marketplaces, Lending Club's IPO could be a boon for smaller platforms.

A screenshot of Lending Club's homepage.

"It's an important validation for the business model," said Rory Eakin, co-founder and chief operating officer for CircleUp, a San Francisco-based Internet platform that connects investors with private companies for private equity transactions. "Financial services has been one of the least-disrupted industries over the last 20 years, and as everything has moved toward the online world, financial services, whether it's bank lending or venture capital, has remained in the analog world. This is a good turning point."

Rather than making loans directly, as a bank does, Lending Club functions as an Internet marketplace, connecting borrowers whose creditworthiness it evaluates with investors who decide whether a particular borrower is worth their risk. The investor, who might be a financial institution or simply an individual, then has a connection with the borrower, lending the money and receiving payments through the Lending Club web platform.

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"Technology has successfully disrupted many industries to the benefit of society at large, and I believe banking is next," Lending Club Founder and CEO Renaud Laplanche wrote in a letter in the prospectus. The company declined an interview because of federal regulations requiring a silent IPO period.

The number of shares to be sold and the price range for the proposed offering have not yet been determined; the financial filing said the company would aim to raise $500 million with its IPO, although that number is likely offered as a placeholder to determine fees. Yet even at $500 million, Lending Club would be one of the biggest tech IPOs in 2014, beating action sports camera-maker GoPro's $427.2 million IPO in June, the largest deal so far this year.

Laplanche has a 5.6 percent stake in the company, while Norwest Venture Partners owns 16.5 percent of the company and Morgenthaler Venture Partners owns 9.2 percent.

Founded in 2006, Lending Club is valued on the private market at $3.8 billion, according to recent estimates. Last year, it made $98 million, three times its revenue in 2012 and nearly eight times its 2011 revenue. As banks have put the brakes on small business loans, the company has attracted more entrepreneurs as well as consumers whose opinion of banks soured during the Great Recession. It has facilitated more than $5 billion in loans since it started lending in 2007. For the first half of 2013, Lending Club processed $799 million in loans; that figure jumped to $1.8 billion for the first half of this year, marking a 125 percent increase, according to the IPO filing.

As sites like Lending Club grow and begin to offer bigger loans, online lending will begin to replace traditional banking for many financial services, analysts say.

"That will start to eat away at the big banks," Eakin said.

But for Lending Club to continue funding its rapid growth, it must attract more lenders, and quickly, to the website, according to the IPO filing. The company makes money by taking a commission of up to 5 percent, but lenders will only come if more qualified applicants apply for loans and pay them back on time.

An average of 3.29 percent of Lending Club borrowers default on their loans, most of which can have an interest rate of about 6 percent up to 24 percent. The company is burning through cash at a quicker rate, spending almost $103 million during the first half of this year, up from $35 million for the same period of 2013. Despite turning a $7.3 million profit in 2013, Lending Club posted a $16.5 million loss for the first six months of this year, giving it a total deficit of $66.8 million.

Lending Club could join what is expected to be a piping hot fall for IPOs, with Chinese behemoth Alibaba preparing to go public on the New York Stock Exchange sometime next month. And it could trigger a windfall of IPOs from companies including Prosper Marketplace. The San Francisco company is on track to go public soon -- the company expects to process about $1.6 billion in loans this year, up from about $370 million last year, and its revenue is growing four times year over year.

"Lending Club is the first of the new wave on online marketplaces to go public," said Aaron Vermut, Prosper CEO. But "this is not a zero sum game. This is money and there is a really, really big market out there."